After metals such as Gold and Silver recorded unexpected gains towards the latter end of last week, there are some indications the bullish momentum is beginning to slow. Since smashing its way to $17.40, Silver appears to be at risk to dropping back below $17 after pulling back to $17.16 early Tuesday morning. Gold might also be at risk to erasing gains, with the metal also declining from $1233 to $1224 this morning. The recent USD softness has probably caused some suspicions that it might be the beginning of a potential correction after so many months of heavy gains, although I personally question this to be the case. What traders are doing more frequently now is taking profit and buying the USD in dips. They are doing this because they have become aware that after so many months of heavy speculation, the Federal Reserve will still remain in no hurry to begin raising US interest rates.
Looking ahead to tomorrow, traders should keep an eye out for the FOMC minutes release because this could represent an event risk for commodities. Although there might be hesitation from the Federal Reserve to begin raising US interest rates as early as the USD bulls would like, the tone delivered through the FOMC minutes is likely to reiterate that it remains committed to raising US interest rates at some point later this year. Reaffirmed optimism that the Federal Reserve is still on course to raising US interest rates could bring back USD appetite for traders and spell bad news for commodities.
Speaking of traders’ appetite, investor sentiment towards oil has certainly changed over the previous couple of weeks. It is conceivable that after depreciating more than 50% over a few months that the commodity was oversold, however gaining back 20% of its value in a fortnight is still an achievement nonetheless. The comeback for the commodity is still a surprise bearing in mind the economic conditions and oversupply issue have not changed at all, but the gains are now surpassing some tough resistance levels and suggesting to me that the bulls are becoming resilient in achieving a higher price.
WTI is now safely back above $50 at $53.18 while Brent Crude has surpassed what could be seen as a psychological resistance level at $60 to find its feet at $61.91. The spread between WTI and Brent Crude has widened again, which is something that was predicted early last month. To be honest, I don’t think volatility in the oil markets will slow down anytime soon either. This is because not only do we have the FOMC Minutes released Wednesday evening, but the latest crude inventory data from the United States on Thursday. Further signs of increased US inventories could rekindle concerns over such an aggressive oversupply in the markets, and possibly lead to the oil markets being at risk of another pullback.
Written by Jameel Ahmad, Chief Market Analyst at FXTM.
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